Spotlight: Why insurance can’t afford to ignore RegTech

With growing regulatory demands, Zoë Parsons, marketing manager of REG Technologies, points out that RegTech is increasingly a necessity rather than a luxury for insurers.

Insurance companies are facing growing challenges. Regulatory pressures are intensifying, operational costs are soaring, and the ever-present threat of compliance violations could destabilise entire businesses. 

When the stakes are so high, the question is: Is RegTech still a luxury, or has it become a necessity for staying competitive and secure?

Traditional methods of handling compliance are not only straining resources but also slowing down firms’ speed to market and making them increasingly vulnerable to fines and reputational damage. 

The average cost of non-compliance has risen more than 45% in the past 10 years, according to Colligo. 

In a market in which agility and timely market entry are crucial, the solution is easy. 

Modern technology, particularly RegTech, offers a transformative path forward, enabling insurance firms to not only meet regulatory demands but also to accelerate their operations and stay competitive. 

What was once seen as a ‘nice to have’ upgrade is now a critical tool for maintaining compliance, improving operational efficiency and safeguarding reputations. In this environment, can insurers really afford to treat RegTech as a luxury?

Mounting regulatory pressure

The wave of new regulations, including Consumer Duty, operational resilience rules and updates to Solvency II, is significantly increasing the compliance workload. 

Nearly 70% of insurance compliance professionals report an increase in the regulatory burden over the past year, as firms grapple with complex data reporting, risk assessments and tighter oversight.

This challenge is exacerbated by the fragmented nature of many firms’ compliance systems. Many firms continue to rely on outdated manual processes to manage compliance related tasks and are finding themselves under growing pressure. 

These legacy systems are inefficient and prone to errors, which can have costly repercussions. For smaller firms, the operational costs are eating into profitability, making it clear that legacy systems can no longer meet the demands of stakeholders. 

Traditional methods of handling compliance are not only straining resources but also slowing down firms’ speed to market.

Zoë Parsons, REG Technologies

This not only slows down business growth but also increases the likelihood of regulatory non-compliance, which can result in substantial fines and reputational damage.

The need for constant counterparty risk monitoring is also gaining regulatory focus. However, only 28% of the general insurance market continuously monitor their trading partners, as reported in REG’s 2024 Research Report, leaving many exposed to potential risks. 

This gap in real-time oversight highlights the necessity of RegTech. By providing proactive tools for continuous monitoring and assessment, RegTech enables firms to make informed decisions swiftly, addressing issues before they escalate into costly crises.

Driving efficiency

RegTech is proving itself as a powerful enabler of efficiency and compliance, automating labour-intensive processes and reducing the risk of human error. 

Its impact is particularly significant in streamlining the onboarding of new counterparties, where it can significantly expedite the initiation of business relationships by simplifying and accelerating cumbersome due diligence tasks. 

Given that 66% of the market now cites regulatory and statutory requirements as a major hindrance to starting new business relationships – up from an average of 47% three years ago – this capability of RegTech is more critical than ever.

As some of the most pressing concerns for the market today, anti-money laundering and fair value assessments are two areas in which RegTech proves especially valuable.

With regulatory bodies such as the FCA requiring stringent AML checks to prevent financial crime, insurance firms must continuously monitor trade partner activity for potential red flags. 

Anti-money laundering and fair value assessments are two areas in which RegTech proves especially valuable.

RegTech systems streamline this by using advanced algorithms to identify suspicious activity and ensure compliance with AML regulations. 

What would traditionally take days or weeks of manual work can now be completed in real time, vastly improving the firm’s ability to detect fraud and maintain compliance.

Additionally, RegTech can greatly enhance the process of gathering fair value assessments across the entire supply chain.

Under The Consumer Duty, insurers must ensure that customers receive fair value from their products and services. 

This requires tracking and analysing data across the supply chain to determine whether all parties within the distribution chain are delivering value to the end consumer. By automating the collection and analysis of this data, RegTech accelerates the assessment process, ensuring insurers meet their regulatory obligations without delays or oversights.

Stephen Gibson, CEO of Avid Insurance, captured the essence of RegTech’s impact: “Technology gets rid of the mundane processes, allowing us to quickly get to the information we need.”

Strategic advantage

Firms embracing RegTech are finding that it not only lightens the load of regulatory compliance but also frees up resources to focus on more strategic business initiatives. 

Automating routine compliance tasks allows firms to redirect their attention towards enhancing customer relationships and pursuing growth opportunities to expand market share.

Digital transformation is reshaping traditional processes such as claims management and underwriting.

Andy Clements, head of distribution, sales and marketing at CNA Hardy, puts it succinctly: “The efficiency saving is being reinvested in more time spent with brokers and clients, strengthening relationships and delivering our specialist solutions. It’s a great example of how technology can greatly enhance outcomes for insurers, intermediaries, and policyholders.”

By streamlining compliance, firms can focus on customer service and strengthening relationships. 

With RegTech handling routine tasks such as regulatory reporting and data validation, insurers have more time to engage with clients and brokers, build trust and tailor their offerings to meet evolving needs. This shift ultimately benefits policyholders, who receive better service and products.

This change is emblematic of the broader trend in the insurance industry, where digital transformation is reshaping traditional processes such as claims management and underwriting. Now, compliance is catching up, and RegTech is enabling firms to handle regulatory obligations with the same efficiency.

MGAs leading the way

Managing general agents, known for their nimble and innovative business models, are leading the charge in adopting RegTech solutions. 

Given their forward-thinking mindset and need for agility and efficiency, MGAs are often early adopters of new technologies.

MGAs are leveraging RegTech to stay competitive and meet growing regulatory demands. This embrace of innovation allows them to quickly penetrate the market and establish strong compliance foundations from the outset.

Even for start-ups in this space, the benefits of adopting RegTech early on are profound. These firms are able to quickly penetrate the market while maintaining strong compliance frameworks. 

Speaking about his firm’s sentiments of using RegTech, Andy Francis, managing director at Generis, said: “REG is the best present you could give a start-up.” For new firms, RegTech can be the difference between struggling under regulatory pressure and scaling successfully.

Reluctance to adopt

Despite the clear advantages, some insurance firms remain reluctant to embrace RegTech. 

A common concern is that technology will replace jobs, particularly in areas such as compliance and reporting, where manual processes have long been the norm. However, this fear is misplaced. Rather than replacing employees, RegTech enhances their roles by automating repetitive tasks, allowing professionals to make informed, valuable business decisions.

Stephen Gibson echoed this narrative, saying: “Technology is there to complement, not replace, rapidly providing information that enables really good people to make the right decisions.” 

By automating routine tasks, RegTech empowers compliance teams to dedicate their efforts to risk management, strategic decision-making and improving business outcomes.

Sticking to the old ways might feel comfortable, but in reality, the cost of maintaining those outdated methods will continue to rise as regulations grow more complex.

Joanne Deveney, Bspoke Group

For insurance firms, the question is no longer whether to adopt RegTech but how quickly they can do so. The growing complexity of regulations, combined with increasing pressure to remain cost efficient, means that sticking to outdated manual processes is simply not sustainable. 

Firms that fail to adopt modern technological solutions risk falling behind competitors and facing greater operational risks.

“Sticking to the old ways might feel comfortable,” says Joanne Deveney, legal, risk, and compliance director at Bspoke Group, “but in reality, the cost of maintaining those outdated methods will continue to rise as regulations grow more complex.”

Concerns around the cost of implementing RegTech solutions, especially among smaller firms, are valid but short-sighted.

While there is an upfront investment, the long-term savings in time, labour and reduced error margins far outweigh the initial costs. 

The automation of compliance tasks leads to fewer staff hours spent on manual processes and early detection of negative regulatory incidents prevents potential breaches that would have a significant financial implication later, evidencing the positive return on investment.

Value of collaboration

The success of the insurance industry has long been built on the strength of partnerships between insurers, intermediaries, brokers, regulators, service providers and customers. 

RegTech reinforces these relationships by ensuring that all stakeholders are working together in a compliant and efficient manner. 

The technology serves as a bridge, facilitating collaboration and ensuring that every part of the insurance supply chain is aligned to deliver fair value to the end customer.

Arguably, compliance is the foundation for trust in the insurance industry. This shift toward RegTech is also about forming mutually beneficial partnerships across all functions of the insurance ecosystem, ensuring that all stakeholders are working from the same compliant foundation. 

RegTech provides a reliable, foolproof tool for managing compliance, ensuring due diligence is never overlooked, and that regulatory obligations are consistently met. This reduces friction and allows firms to focus on what matters most – serving the end consumer.

Future of insurance

As regulatory requirements continue to evolve, insurers can no longer afford to rely on manual processes and legacy systems.

RegTech supports firms throughout the customer lifecycle, from streamlined onboarding to continuous counterparty due diligence – allowing organisations to focus on core priorities – building relationships and growing their businesses. 

The insurance industry’s future success will depend on its ability to embrace technology.

To complement this, it’s crucial for companies to cultivate a strong compliance culture throughout their organisation. 

By staying ahead of regulatory changes, leveraging new technologies and implementing comprehensive compliance strategies, insurance firms can confidently address their regulatory responsibilities, manage risks and build a trusted, sustainable presence in the market. 

After all, proactive adaptation, rigorous due diligence and setting high standards for regulatory management are essential to maintaining a reputable and resilient business.

The insurance industry’s future success will depend on its ability to embrace technology. Players that arm themselves with the best compliance tools are ensuring they are best equipped to manage regulatory demands and succeed in holding a competitive advantage. 

Firms that recognise this will be powerfully positioned to navigate regulatory challenges, foster stronger partnerships and deliver better outcomes for their clients and policyholders. So, ask yourself again – is RegTech a luxury or a necessity?

Read the full findings from the REG Technologies research on Insurance Hound 

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